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Just Transition Fund’s success: Neo’s €100M magnet factory in Narva

The Canadian company Neo Performance Materials (Neo) is building a permanent magnet factory in Narva, Estonia, making it the first of its kind in Europe and the Western world. The produced magnets are essential for the green transition of numerous industries, serving as a crucial component for electric vehicles and wind turbines.

“The production of magnets is dominated by Asian companies. The reaction in Europe is that production should be in Europe. The start of the European process has now begun here, at one of the starting points in Europe,” said Constantine Karayannopoulus, CEO of Neo. According to Karayannopoulos, the Narva plant’s production capacity is initially planned at 2,000 tonnes of magnetic blocks per year, with the potential to expand to more than 5,000 tonnes per year in the future. “This could bring the total investment to around €250 million and we may need to expand our employment to around 1,000 people,” he added.

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Millions of electric cars to follow

The plant in Narva is expected to begin production of permanent rare earth magnets in 2025, with volumes sufficient to support the manufacturing of approximately 1.5 million electric cars. Neo’s expected phase 2 production of 5,000 tonnes per year will support the manufacturing of 4.5 million electric cars.

Neo’s nearby rare earth separations plant in Sillamäe, Estonia will provide rare earth feedstock to the Narva plant from the U.S. and other sources. These high-purity magnetic rare earth oxides will be transformed into sintered neodymium-iron-boron magnets. This process will be the first of its kind in Europe.

The formerly secret town of Sillamäe in East Estonia is where it all started. Neo acquired the Sillamäe rare earths factory Silmet in 2015.

At the heart of the manufacturing process lies the division of ore, sourced from the U.S., into distinct rare earth elements, essential components for crafting permanent magnets. Vasileios Tsianos, Director of Corporate Development at Neo, explained that the Sillamäe factory itself is unique in the Western world and its main advantage is its people, well-trained in this rare technology.

The history of the Silmet plant dates back to 1926 when Swedish-Norwegian company Estonian Oil Consortium, controlled by Marcus Wallenberg, was established to build a shale oil extraction plant. After WW2 the plant was reconstructed for a secret mission to produce uranium oxide and enriched uranium. It specialised in rare earth elements in the 1970s. With such a background, it’s quite a leap to become a driver in the green transition. Today, Silmet is the only industrial-scale and commercially operating midstream (i.e. separations) facility of rare earth elements outside of Asia. It stands as the sole facility in the Western hemisphere capable of efficiently transforming rare earth ore concentrate into oxides on a large scale.

The new magnet facility at Narva is different from the current Silmet facility – it is a downstream facility. The Silmet facility will supply rare earth oxides to the Narva facility, the oxides to be converted into rare earth alloys and then rare earth sintered permanent magnets. The Narva magnet facility will manufacture the highly engineered speciality magnets required for motors of electric vehicles.

Estonia is becoming a strategic jurisdiction of Western supply chains

The separations and magnet plants in Estonia de-risk the automotive sector jobs that are precarious in Europe during the transition from internal combustion engine vehicle manufacturing to electric vehicle manufacturing. The same applies to offshore wind turbine manufacturing, especially in times when wind energy has to scale at record speed for the EU’s energy security and diversification away from Russian gas. For the European car industry and its 500,000+ jobs, it’s highly important to reduce the supply chain risk and divert from its complete dependence on China for rare metals and magnets.

Three years ago Neo began to assess the market and the challenges of building the first rare-earth-sintered-permanent-magnet manufacturing facility specifically for EV motors outside of China. It spoke with current and future customers in the electric vehicle value chains and developed its assurances that the business case is based on solid assumptions, particularly around the EU policy tailwinds. Tsianos said: “In Estonian politicians, civil servants and all local business partners, Neo found the most entrepreneurial and problem-solving attitude, which seems to be driven by a collective Estonian pursuit for growth and becoming a most strategic jurisdiction for critical supply chains of the Western world.”

The Just Transition Fund should bring change in the business sector in Ida-Viru County, which is historically based on an oil shale industry with a large environmental footprint. “The war [in Ukraine] did make the investors uneasy for a while, but they know that this is EU territory, this is NATO territory, and they feel safe here. I hope other companies feel the same,” said Ivan Sergeyev, coordinator of the Just Transition process in Ida-Viru County.

Estonia’s Just Transition Fund of €354M focuses on two strands, ‘Economy and labor’ with €273 million and ‘Environment and social inclusion’ with €66.7 million of triggering measures.


Source: Invest in Estonia

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